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CA Final · Financial Reporting · Ind AS 16 Property, Plant and Equipment

Kaveri Engineering Ltd is commissioning a new machine. Directly attributable costs of bringing it to working condition were: purchase price Rs 50 lakh, installation Rs 4 lakh, and testing costs Rs 3 lakh. During testing, the machine produced items that were sold for net proceeds of Rs 5 lakh. Under Ind AS 16 as notified in India (excess of net sale proceeds of items produced over cost of testing is not recognised in profit or loss but deducted from directly attributable costs), what is the cost of the machine?

The cost is Rs 52 lakh. Purchase price, installation and testing total Rs 57 lakh, and under the Indian version of Ind AS 16 the sale proceeds of items produced during testing are deducted from directly attributable cost rather than credited to profit or loss, giving 57 minus 5.

  1. ARs 57 lakh
  2. BRs 55 lakh
  3. CRs 52 lakhCorrect
  4. DRs 54 lakh

Explanation

Directly attributable costs: 50 + 4 + 3 = Rs 57 lakh. Net sale proceeds of Rs 5 lakh exceed nothing separately, since testing cost is already included in cost; the proceeds are deducted from cost: 57 - 5 = Rs 52 lakh. Rs 57 lakh ignores the proceeds, which the Ind AS version does not take to profit or loss. Under IAS 16 the proceeds would go to profit or loss, but Ind AS differs.

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